A Rollercoaster Ride For US Corn Prices

What a difference a year makes! Corn (or maize) prices reached a record high of more than $8 a bushel at the end of August 2012, but have since fallen to nearly half this level. Prices dropped close to $4.50 a bushel in recent weeks, due both to a surprisingly high stock level has been reported by the US Department of Agriculture and the expectation of a record level of US corn production.

As we reported in April, the Midwest suffered from one of the worst droughts in history last summer, with US corn production dropping 13% year-on-year and, as a result, prices spiking sharply to record highs. Prices have fallen significantly since April as news has come through that this season’s harvest should reach record levels with global production also up and export demand for US corn dented by last year’s lack of availability. Prices are now at their lowest level in three years.

The high prices seen in 2012 led to an increase in corn plantings to 97.4m acres – the highest level since 1936 and the fifth consecutive year of area increases. The weather during the 2013/14 season has led to high yields, and in September the USDA predicted a record harvest of 351.6m tons, up 28% year-on-year. Coupled with this increase in production, the USDA has also recently and unexpectedly revised its estimate for opening stocks in the 2013/14 season up by 25%. This has been driven by reduced global demand for US corn, the world’s largest producer, as well as weaker domestic demand.

Last season’s low production and high prices forced corn importers to look to other major producers such as Brazil and Argentina for their needs. US exports dropped by 54% year-on-year last season, with both Brazil and Argentina exporting more than the US. Although US exports in 2013/14 are expected to recover and the US will once again be the world’s top corn exporter, exports will still be 15% down on the level seen in the 2011/12 season.

Total world corn supply is also increasing with global production projected to reach 956.6m tons, up 11% year-on-year, as China and the EU also expect increases in production. However, Brazil and Argentina are expected to show a drop in production due to a fall in planted area.

With all these influences, corn prices are expected to stay low until at least the end of the year and are also likely to impact on other animal feed grains, acting to restrain any price increases in these markets too.